BEIJING — The exchange rate of Chinese currency renminbi, or yuan, will remain basically stable at a reasonable and balanced level, China’s central bank governor Yi Gang said on July 3.
The People’s Bank of China (PBOC) is closely watching the recent fluctuations in the foreign exchange market, Yi told Xinhua-run China Securities Journal.
The central parity rate of the renminbi weakened 340 basis points to 6.6497 against the US dollar on July 3, hitting a new low since Aug 25, 2017.
Yi said a strengthening US dollar and external uncertainties have given rise to procyclical behavior, which refers to economic change that is positively correlated with the overall state of the economy.
China’s economic fundamentals, he said, are sound and its financial risks are generally controllable. “The Chinese economy has entered a phase of high-quality development, with a stable international balance of payment and generally balanced cross-border capital flow.”
China will use its experience and ample policy tools to maintain the yuan’s exchange rate basically stable at a reasonable and balanced level, Yi said.
The PBOC chief said China will adhere to a managed floating exchange rate system, which is market-oriented and formulated in reference to a basket of currencies.
“The effectiveness of the system has been proved by years of practice, and we will continue to abide by it,” he said.
Yi said China will continue to adopt a prudent and neutral monetary policy and deepen the market-oriented reform of the yuan’s exchange rate mechanism.
Yi’s view was echoed by PBOC’s deputy head Pan Gongsheng, who said at a forum in Hong Kong on July 3 that the yuan has strengthened its flexibility since the beginning of this year.
“We have the fundamentals, capabilities and confidence in keeping the yuan’s exchange rate basically stable at a reasonable and balanced level,” Pan said, pointing to a more resilient Chinese economy and the country’s ample foreign exchange reserves.